Winnebago County explores a remedy for neighborhood blight

Saturday

ROCKFORD — The mayors of Rockford, Loves Park and South Beloit are pressing Winnebago County to overhaul its delinquent-tax program, which corrodes neighborhoods and drains property values, costing local governments more than $1 million a year in lost revenue and cleanup costs related to neighborhood blight.

Elected leaders of the county, and the cities within it, are embracing a shared strategy to fight blight — evidence that after decades of solo efforts, Rockford and its neighbors are thinking regionally about a problem that has vexed cities and neighborhoods throughout Winnebago County.

When property owners don't pay their taxes, the county attempts to recover at least some of the money owed to local governments through an elaborate system of foreclosures, tax sales and surplus property auctions. Winnebago County's cities, school districts, park districts and other taxing bodies are collectively owed $10.8 million because of delinquent property taxes.

But here's the rub: The program that Winnebago County established two decades ago to return delinquent properties to the tax rolls is warped by perverse incentives that keep hundreds of these orphan properties locked in perpetual blight, costing local governments more than $1 million a year in property maintenance and lost tax revenue.

The county hired a Decatur real estate firm to manage the program in 1997, and the company has since earned $2.1 million for its work. Those efforts are wasted, said Rockford Mayor Tom McNamara, because the county's program is fundamentally flawed.

“There's no system in place to maintain these properties, so the city has to spend money to mow the grass on all these lots and we demolish houses and buildings when they become a hazard,” McNamara said. “There are fires that happen, there is crime, and it puts our first responders at risk, not to mention that all this blight is just killing our neighborhoods.

“The city of Rockford — we're spending $200,000 a year, $300,000 a year, sometimes up to $450,000 a year when you factor in the public safety and maintenance costs of dealing with all of this blight. That's money we don't have. We can't afford that anymore. The county's program is broken. It doesn't work. We need to try something new.”

McNamara, Loves Park Mayor Greg Jury and Mayor Ted Rehl of South Beloit want the county to terminate its contract with the Decatur company, Dennis Ballinger Real Estate, and place the delinquent-tax program under the management of the Region 1 Planning Council — a public agency that provides research, strategic planning and grant-writing services for local governments in northern Illinois.

The system proposed by the planning council would expedite sales of tax-delinquent properties through an online portal and ensure buyers committed to cleaning up blight are chosen through a screening process.

“We cannot look at this as a Rockford issue or a Loves Park issue or a South Beloit issue,” Rehl said. “Blight is a countywide issue.”

Rehl said the method of returning distressed properties to the tax rolls since the late 1990s has done nothing to eradicate blight. In fact, he said, the program has perpetuated blight.

“We've been maintaining all of these blighted properties and just reacting to the problem for all these years,” Rehl said. “Now we have a solution that allows us to see where the problems are brewing and to begin to attack the problem instead of just reacting. This is a countywide solution that will take county leadership to solve, but until we understand the regionalism of this problem, we won't solve it.”

Tax-delinquent orphans

As of March 31, there were 669 properties in Winnebago County that were off the tax rolls because the original owner failed to pay taxes and the county ended up holding the deed. The problem, however, is much larger because there are thousands more tax-delinquent properties for which the county does not hold the deed. That number is now about 3,500.

A blight on Potter Street

There are hundreds of delinquent-tax properties in Rockford at any given time, mostly on the west and southeast sides of town. Although Loves Park's challenges are far smaller, Jury said, blight poses a risk to the prosperity of the entire county.

The city of Rockford places liens on blighted, tax-delinquent properties to recoup what it spends to clean them up and prevent the decay from spreading throughout entire neighborhoods. However, that practice only increases the likelihood that the property will remain tax delinquent because prospective buyers tend to shun properties that are buried in liens.

That's exactly what has happened over the past decade to a house in the 3200 block of Potter Street in Rockford. Property taxes on the home went unpaid for nine years, generating a total liability of approximately $17,000. Multiple investors who bought the unpaid taxes through the county's delinquent-tax program ended up walking away, too.

The house slowly rotted until last year, when the city spent nearly $8,000 to demolish it. Piles of dirt, litter and a few old tires are all that occupies the empty lot today. It's not a pretty sight, but it looks substantially better than it has for the past 10 years, said Shirley Murphy, pastor of Highway to Heaven Full Gospel Church, which stands next to the empty lot.

“I'm grateful they took the house down,” Murphy said. “It not only makes my church look better, it makes the whole community look better.”

Even so, Murphy said, there are plenty of other shabby properties nearby, and blight maintains a firm grip on the neighborhood.

A new pub, an old car wash

South Beloit has around 30 tax-delinquent properties that are dragging down property values within its 6 square miles, Rehl said. Public enemy No. 1 is a boarded-up car wash on Gardner Street that has wallowed in tax delinquency for a decade. Police, along with city zoning and code enforcement officers, have paid numerous visits to the site, Rehl said, and the city has spent more than $10,000 to clean up trash that has been dumped there.

Rehl's administration has found some success redeveloping the gritty commercial district surrounding the old car wash. Last year, the city awarded Bob Larsen and his wife, Beth, a low-interest loan that allowed the couple to open Artisan Pub adjacent to the shuttered Gardner Street car wash. Rehl said the restaurant and tavern serves great food and is breathing new life into an old pocket of the city.

The city wanted to buy the car wash property last year, either to help Artisan Pub expand or simply to encourage more redevelopment along Gardner Street. Rehl said that Mike Ballinger, the son of Dennis Ballinger, whose company manages the county's delinquent-tax program, told him that city officials would have to attend an auction and bid on the property along with everyone else.

Rehl said he and city attorney Roxanne Sosnowski attended the auction, but when the car wash lot was offered for sale, the city was outbid by A.J. Smith, the owner of Flying AJ's Towing. Smith owns four other properties on the same block. He wants to reopen the car wash and says the city is stonewalling his attempts to obtain the necessary permits.

Rehl said the city is willing to work with Smith on a redevelopment plan. But urban renewal could have begun months ago, the mayor said, if the county's program had a local manager who was more responsive to the city's redevelopment plans and willing to sell or deed the property to the city.

The county's contract with the Decatur firm requires buyers to pay the entire sale price of any surplus property sold at auction within 90 days. But Rehl said that Mike Ballinger allowed Smith to make installment payments over a period of nine months.

“The city has talked with developers who are interested in doing something with that property, but it was held hostage for months and months,” Rehl said.

Upside-down incentives

Winnebago County pays Dennis Ballinger Real Estate $150 or 25% — whichever is higher — of the sales price of every delinquent-tax property it sells, an arrangement that gives the Decatur company an incentive to sell properties at auction for the highest price possible. Additionally, the company earns a fee whenever a property owner redeems delinquent taxes.

The company earned nearly $200,000 for managing the county's delinquent-tax program in 2018, according to county records. In 2017, the company earned $430,175. On average, the Decatur firm has earned more than $228,000 a year for the past five years for its work in Winnebago County.

Scrapping the auction process and selling tax-delinquent properties through an online portal, as the R1 Planning Council proposes, could result in lower sales prices. But if the properties are sold more quickly, then the region may be better positioned to see property values rise over the long term, said Eric Setter, the planning council's land bank coordinator.

“You may take $500 less for a property, but if you sell to a good buyer, instead of whoever is the highest bidder, and then that buyer fixes up the property and improves it, then the taxing bodies are going to make way more” in property tax revenue in the long run, Setter said.

The R1 Planning Council would screen prospective buyers to ensure that the real estate lands in the hands of responsible owners. That's key, said Sosnowski, South Beloit's city attorney.

“These auctions are a joke,” Sosnowski said. “They don't make anyone qualify to purchase these properties. So you've got people bidding on these delinquent properties who are already problem property owners, with several code-enforcement violations on other properties they own in the city.”

The county's delinquent-tax program is fundamentally flawed, McNamara said, because there's no mechanism to vet bidders who show up to an auction.

“The idea that we are selling properties to people who are perpetually in code hearings for violations on other properties — that makes no sense,” McNamara said. “We don't do that kind of thing in Rockford. We don't give liquor licenses to people who own 10 bars and have had shootings at each one. That just makes no sense.”

'What's not to like?'

Hiring the R1 Planning Council to manage the county's delinquent-tax program would involve restructuring the program so that fees paid by those who buy tax-delinquent property offset the cost that Rockford and other cities now bear to raze shabby buildings, haul away trash and mow tall weeds on these properties.

The planning council is crafting an intergovernmental agreement, to be considered by the County Board in the coming weeks, that will detail exactly how the program would be overhauled. What's been proposed so far involves a novel financial structure.

The planning council can manage the program for far less money than Dennis Ballinger Real Estate because the public agency doesn't need to earn a profit. The agency gets its money from federal transportation planning dollars and grants and generates revenue from fee-for-service contracts. Revenue that the county program generates above and beyond the planning council's expenses would be rechanneled to pay for an additional blight-fighting tool: the newly formed Northern Illinois Land Bank Authority.

The land bank can acquire blighted or tax-delinquent properties that have been shunned by the private marketplace and then assemble, or reassemble, the previously unwanted real estate to make it more desirable for redevelopment.

The land bank also employs staff members from the R1 Planning Council — namely landbank coordinator Setter — to locate, acquire and then sell or deed distressed properties to buyers who have a more productive use in mind for them.

Placing the county's delinquent-tax program under the umbrella of the R1 Planning Council could help county find willing buyers for orphan properties more quickly than the Decatur firm that manages the program today.

Dennis Ballinger Real Estate, under its contract with the county, is required to hold just two surplus property auctions each year. The planning council proposes to establish a website to market these orphan properties 24 hours a day, seven days a week, much like an online multiple listing service website that advertises homes for sale.

A continuous sales process such as that, Jury said, could allow Rockford Public Schools, Loves Park, Rockford and all other taxing bodies in the county to more quickly recoup unpaid taxes that they're owed.

“This is a solution that the communities and the mayors are behind,” Jury said. “And we have a local group — the planning council, which we have oversight of — that's going to run the program. What's not to like? This should take five minutes to approve.”

'This is regionalism'

McNamara said his administration pressed county administrators for more than a year to fix the county's broken tax sale system. The talks went nowhere, he said, until he and County Board Chairman Frank Haney asked the R1 Planning Council to study the problem and come up with a solution. The planning agency's model, McNamara said, wasn't initially embraced with enthusiasm by individuals in the county treasurer's office and the state's attorney's office who assist Dennis Ballinger Real Estate in running the tax sale program.

County Board member Keith McDonald, R-6, told the mayor that he was surprised to learn that the program was so broken and that talks had gone on for so long without a solution.

“I'm embarrassed you've been working on it for two years and we've just now heard about it,” McDonald said.

Board member Angie Goral, D-13, said she favors hiring the R1 Planning Council to take over the program.

"I just don't want to live with a bunch of yucky properties in my neighborhood," said Goral, whose district spans northwest Rockford. "And I'm not moving."

Blight in Winnebago County will metastasize if the County Board doesn't fix its tax-sale program soon, Rehl said.

“If I cut my hand, I guarantee you it will get worse if I let it go,” Rehl said. “There will be an infection. It will spread. Eventually, something's going to happen to my heart. And it's the same thing with blight.

“Roscoe may only have six homes that are tax delinquent," Rehl said "But if they've got a problem, then the county has a problem. This is one of those times that the County Board can come together and show that they can lead and support a solution that is regional. This is regionalism.”

Isaac Guerrero: 815-987-1361; iguerrero@rrstar.com; @isaac_rrs

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